The Grumpy Old Accountants, Professors Anthony Catanach and Edward Ketz, revisit changes in the audit world prior to the Enron disaster at Enron’s Tenth Anniversary: Context for Andersen’s Auditing Failures. Visit their post for a refresher on what the environment was like at the time.
I think one very serious transition in that time was audits becoming loss leaders that promoted lucrative consulting work.
It wasn’t just that selling audits was more important than doing the audit. That is a constant danger, before and since. Even worse, that was the time when selling exorbitantly lucrative consulting work was more important than doing the consulting work which was more important than selling audit work which was more important than doing audits right. Hard to keep your eye on audit quality in that environment.
Check out their post for a better explanation than I can provide.
The profs revisit the Enron crimes in their post Enron’s Tenth Anniversary: The Crimes.
Central issue was using special purpose entities (SPEs) to move assets and liabilities off-balance sheet. Hiding assets & liabilities is just the start of the problem. If the value of the assets tank, as they did, the loss is off the income statement and the net liability is off the balance sheet.
More posts to come from the profs.